What’s next for oil shale?

Shell Oil has announced it’s closing its Mahogany Research project in Rio Blanco County, ending more than 30 years of testing in Western Colorado. Work continues on other projects in Colorado and Utah, however, to develop a resource estimated to offer the equivalent of more than 1 trillion barrels of oil. (Photo courtesy Shell Oil)

Kelly Sloan, The Business Times

Even as one energy company discontinues oil shale research in Western Colorado, industry observers hold out hope for development of a potentially vast energy resource.

Shell Oil Co. announced it’s shutting down its Mahogany Project after spending tens of millions of dollars and more than 30 years in developing sophisticated technology to heat oil shale underground within a protective enclosure of ice.

Still, work continues on a number of other oil shale research projects in Colorado. Commercial production could occur in Utah, which offers private and state land for development along and a less inclement political climate.

“It’s disappointing, but not the death knell for oil shale,” says Glen Vawter, executive director of the National Oil Shale Association based in Glenwood Springs. “Shell was a stalwart in oil shale research and they were involved for three decades, so it’s discouraging to see them leave. But other companies are hanging on.”

Brad McCloud,  executive director of Environmentally Conscious Consumers for Oil Shale (ECCOS) based

Brad McCloud

in Grand Junction, attributes Shell’s announcement in part to an analysis that calls for a substantial reduction in the amount of federal land available for potential leasing and development of oil shale and tar sands. “No one should take this as evidence that Shell is getting out of oil shale, they are just getting out of Colorado,” McCloud says.

Diane Schwenke, president and chief executive officer of the Grand Junction Area Chamber of Commerce, says that while oil shale research and development continues, the decision to close the Shell facility is disappointing nonetheless. “It is unfortunate that a business, after spending its own money on R&D on a future energy source, did not have the support structure they needed.”

Shell Oil, the North American arm of Royal Dutch Shell, announced it will shift resources to other opportunities, including oil shale research in Canada and Jordan.

Shell was among the largest and most established companies involved in oil shale development in Western Colorado. At its Mahogany Project in Rio Blanco County, Shell experimented with a technique for heating underground shale formations in place — or “in situ” — to extract kerogen that can be refined into gasoline and other petroleum products. At the same time, Shell experimented with a technique to create an underground enclosure of ice to protect groundwater from contamination.

There have been a number of efforts over the decades to develop oil shale, including a major push in the 1970s that led to a boom

Glenn Vawter

and subsequent bust in Western Colorado. While commercial-scale production has yet to occur, a large resource remains untapped.

Oil shale is a sedimentary rock that contains significant amounts of kerogen, a hydrocarbon that when heated becomes a liquid and is released from the rock. The resulting liquid can be refined into gasoline, diesel, jet fuel and other petroleum products much like regular crude oil. The largest and richest oil shale formations in the world are found in Colorado, Utah and Wyoming.

The U.S. Geological Survey estimates the equivalent of 1.5 trillion barrels of oil are trapped in shale deposits in Northwest Colorado, Southwest Wyoming and Northeast Utah, half of which are recoverable. That’s nearly double the estimated 267 billion barrels of crude oil reserves in Saudi Arabia.

Most of the largest concentrations of oil shale deposits are located in Colorado beneath federally owned land managed by the U.S. Bureau of Land Management.

Earlier this year, the BLM released a programmatic environmental impact statement that amended resource management plans for oil shale. The statement greatly reduced the amount of land available for leasing and placed greater restrictions and conditions on commercial lease applications.

The preferred alternative for the statement reduced the land available in Colorado, Utah and Wyoming for potential leasing and development of oil shale and tar sands from a total of about 2.4 million acres to 462,000 acres. In Colorado, the available acreage would shrink from 346,000 acres to 35,308 acres. The analysis was conducted as a result of a settlement with various environmental groups that sued the BLM.

Even as Shell discontinues its operation, a number of  other companies continue with their oil shale operations in the region,

Diane Schwenke
Diane Schwenke

including American Shale Oil (AMSO), Exxon Mobil and Natural Soda in Colorado as well as Enefit and Red Leaf Resources in Utah, Vawter said.

AMSO has developed a different in-situ technology than Shell and is pursuing a research, development and demonstration lease, Vawter said. He also pointed out that AMSO is backed by French oil giant Total.

Shell’s exit potentially could signal the entrance of a different type of oil shale investor, Vawter said. “You could see smaller entrepreneurial companies with new technologies at the forefront.”

Vawter worries, though, federal restrictions could discourage such companies from establishing operations in Colorado. “Restricting access to federal land makes it impossible for anyone in the in-situ business,” he says.

McCloud agrees. “Shell has proven that their technology can work. The issue is when you have a regulatory environment that arbitrarily changes from administration to administration, you remove the incentive for the industry to go ahead and take the chance to commercialize and capitalize on the millions upon millions of dollars it has invested.”

Vawter says the oil shale industry could move to Utah, where the formations are of somewhat lesser quality,  but located mostly on private or state land. “In Utah, the companies are not dependent on access to federal land, and the political climate is more favorable to development.”

Both Enefit and Red Leaf Resources operate oil shale surface mining projects in Utah, Vawter said. “Enefit has a technology that has been used to produce oil shale in Estonia for decades, and their objective is to bring what they have learned over here.”

One of the first commercial-scale operations could occur at the Red Leaf Resources project near Vernal. There, mined shale is heated in closed surface impoundments to produce kerogen.

McCloud also sees Utah as offering more favorable climate for oil shale development than Colorado. “Utah has a governor who seems much more willing to advocate for oil shale development in his state.”

Schwenke holds a similar outlook for the oil shale industry. “Not everyone has abandoned research and development for future energy sources,” she says.

Looking forward, McCloud says he remains cautiously optimistic oil shale has a future in the Western U.S. — even in Colorado. “All of these companies are proving that they can provide the economic benefits of oil shale development in a cost effective and, more importantly, environmentally responsible way,” he says.

“AMSO hopes to make it work despite the obstacles and political climate,” McCloud adds.

Vawter shares in that optimism based in part on the development of other energy resources. “Ten years ago, oil and gas from shale deposits (like those found in North Dakota and Pennsylvania) were considered uneconomical to try and produce. But by developing new technology on private lands, they opened up the resource. The same promise exists for oil shale.”

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